Standing Committee B

[Sir Nicholas Winterton in the Chair]

Finance Bill

(Except clauses 11, 18, 40, 43, 44 and 69 and schedule 8)

Nicholas Winterton: First, let me welcome hon. Members on both sides of the Committee to the first sitting of the Finance Bill 2005. I wish to express a particularly warm welcome to new Members. This will be their first Standing Committee and I hope that it will be an enjoyable and pleasant experience. Looking around the Room, I am completely convinced that our sittings will be orderly and constructive and that interventions from the Chair will be extremely rare.
I have an understanding of people's comfort and, although I am an Englishman of the traditional sort, if members of the Committee wish to take off their jackets and hang them on the back of their chair, they may do so, because we are in for a very warm day. I call the Paymaster General to move the sittings motion.

Dawn Primarolo: I beg to move,
That, during the proceedings on the Finance Bill (except Clauses 11, 18, 40, 43, 44 and 69 and Schedule 8), the Committee do meet at half-past Ten o'clock and half-past Four o'clock on Tuesdays and quarter-past Nine o'clock and Two o'clock on Thursdays when the House is sitting. 
On behalf of the Committee, I extend a warm welcome to you, Sir Nicholas, and to your co-Chairman, Mr. Cook, as you assume your responsibilities at the commencement of our proceedings. You and Mr. Cook are knowledgeable and experienced Chairmen and you have both served on Finance Bill Committees in the past. We all welcome your expertise and have no doubt that you will ensure that our deliberations are thorough, yet to the point. 
I also extend a warm welcome to the hon. Member for Runnymede and Weybridge (Mr. Hammond), who will lead for the Opposition in Committee, and to the members of his team, the hon. Members for Cities of London and Westminster (Mr. Field), for West Suffolk (Mr. Spring) and for Rayleigh (Mr. Francois), and their hon. Friends who will support them. 
I look forward to the opportunity to debate the Bill with the hon. Member for Eastleigh (Chris Huhne) and his Liberal Democrat colleagues, the hon. Members for Richmond Park (Susan Kramer) and for Bristol, West (Stephen Williams). I believe that this is their first Finance Bill and I have no doubt that they will find it an enjoyable experience. 
I am joined today and will be supported throughout the debates by my hon. Friends, the Financial Secretary and the Economic Secretary to the Treasury. I know that they join me in welcoming my hon. Friends to the Committee. Although we will be  discussing the Bill for only a few weeks—perhaps we are fortunate to be discussing a Bill that has fewer clauses than usual—I am reassured that they will give due diligence to our duty of examining the legislation. I look forward to our debates.

Philip Hammond: I echo your words of welcome, Sir Nicholas. I am sure that members of the Committee will have an enjoyable and worthwhile time scrutinising what are, in fact, some complicated measures. I congratulate the Paymaster General: I served as a Back Bencher on a Standing Committee that discussed Finance Bill in 1998 and the right hon. Lady was the Paymaster General at that time, so I think that I can say without fear of contradiction that she is by far the most experienced member of the Committee, having been involved in nine Finance Bills since the Labour party came into office.
I am sure that our Committee proceedings will be good and I, too, welcome all new Members. It is good to see so many new Members on a Committee considering a Finance Bill. Finance Bills are traditionally regarded by the Whips as a great proving ground. Sadly, this Finance Bill—the second of 2005—is stripped of some of the sex appeal that usually accompanies such Bills; we are left with the hard work, but I do not see anyone in the Room who will be at all daunted by that. 
On the sittings motion, the Opposition are a little dismayed, not only on our own behalf but on behalf of all Committee members, by the way in which the Thursday sittings are to pan out. I fully accept that that is a consequence of the change to the sitting hours of the House, but sitting for just over an hour on Thursday mornings seems a rather strange way to manage a Committee. Also, sitting for four hours on a Thursday afternoon—a necessary consequence if we are to get our five hours of deliberation—especially on a hot day in June, is probably not conducive to the best possible scrutiny of the Bill. I wonder whether you could feed back those concerns through the Liaison Committee, Sir Nicholas. 
I do not know whether these matters were considered when the 10.30 am start on Thursday was discussed, but clearly the logical thing to do would be to start the Committee proceedings much earlier, so that the Committee can rise at 10.25 am having considered the Bill for a sensible period on Thursday morning. That said, we accept that the sittings motion is probably as good as we can achieve, although we would have preferred an 8.55 start on Thursday mornings. That would have given us a little more time to consider matters before we adjourned for lunch.

Nicholas Winterton: The hon. Gentleman posed one or two questions that are really for the Chairman. First, I was wrong when I said that this was the Finance Bill 2005, and others have been wrong when they called it the second Finance Bill this year. I have been advised that it is, in fact, the third Finance Bill, the first having been withdrawn. That is a point of accuracy.
Secondly, what time the Committee starts its deliberations on Thursday is not really a matter for  the Chairman, or even for the Liaison Committee; it is a matter for the Government, the House and the Chairmen's Panel. I assure the hon. Gentleman that the Chairman's Panel will spend some time considering Thursday sittings. However, the Committee needs to take account of not only Members of Parliament, but those who serve the Committee, such as the Clerks. A great of work goes into preparing a sitting of a Bill. Clerks might get away late the evening before but still have to be in extremely early to marshal amendments and do all the appropriate work to ensure that things are in order and can proceed satisfactorily when the Committee sits. None the less, the Opposition spokesman's views have indeed been heard. 
Question put and agreed to.

Nicholas Winterton: Before we proceed to the first amendment—[Interruption.] No, I say to my Clerk that we will come on to that in a moment. I have some preliminary announcements relating to the Bill.
First, copies of the Ways and Means and money resolutions agreed by the House, on which the Bill is founded, are available in the Committee Room. 
Secondly, in view of the resolutions of the House relating to the declaration of interest, right hon. and hon. Members are required to declare relevant interests when they table amendments, as well as when they speak to them. Copies of the rules are available from the Clerk. 
Thirdly, as usual because of the quantity of paperwork on the Bill, boxes are available to store papers between sittings. Members who make use of that facility should note that the filing cabinet that contains the boxes will be locked when the Committee is not sitting. 
Fourthly, I draw attention to the fact that adequate notice must be given of amendments; that issue has already raised its head, just before the Committee sat. Neither I nor my co-Chairman will, as a rule, call any starred amendments, including those that may be reached during an afternoon sitting. 
 Finally, as I always do at the beginning of a sitting, I request that Members switch off all mobile phones. I remind Members that it is not permissible to use electronic devices. I hope that Members on both sides take account of all those notices. 
Resolved, 
That the Order in which proceedings in Standing Committee on the Finance Bill are to be taken shall be Clauses 1 to 6, Schedule 1, Clauses 7 to 10, Clause 12, Schedule 2, Clauses 13 to 17, Clauses 19 to 24, Schedule 3, Clauses 25 to 34, Schedule 4, Clause 35, Schedule 5, Clauses 36 and 37, Schedule 6, Clauses 38 and 39, Schedule 7, Clauses 41 and 42, Schedule 9, Clauses 45 to 49, Schedule 10, Clauses 50 to 68, new Clauses, new Schedules, Clause 70, Schedule 11 and Clauses 71 and 72.—[Dawn Primarolo.]

Clause 1 - Goods subject to warehousing regime: place of acquisition or supply

Richard Spring: I beg to move amendment No. 60, in clause 1, page 1, line 7, at end add— 
'(1B) The circumstances which may be prescribed in subsection (1A) shall be limited to those where goods are sold by taxable persons to non-registered persons within the United Kingdom.'. 
I hope that the Paymaster General will find this minor amendment quite helpful. The regulations could be interpreted as being unnecessarily wide and the amendment would merely to compel them to be limited to the tax planning that the clause intends to prevent and any derivations of that planning that may follow the proposed regulations.

Dawn Primarolo: The VAT-free trading of goods within a customs warehouse is a valuable trade facilitation measure that is enjoyed by hundreds of UK businesses. Unfortunately, it has been subject to an abuse by a small number of traders. Therefore, new section 18(1A) of the Value Added Tax Act 1994 will provide Her Majesty's Revenue and Customs with the power to specify circumstances in which the relief from VAT afforded to transactions in a customs warehouse will not apply.
I understand the intention behind the amendment: the hon. Gentleman is trying to protect the overwhelming majority of businesses that benefit from the relief as intended. However, the amendment is not necessary because they are already protected. The Government recognise the value of section 18(1) of the 1994 Act and what it provides. They have no wish to limit its availability, except in cases where the relief is being abused. The relief will continue to be available to compliant taxpayers. 
The problem with the amendment as drafted is that it would allow those few taxpayers to circumvent the clause. All that any taxpayer would need to do to abuse the relief is use a business that trades wholly in a warehouse. Such a business is not a taxable person within the meaning of the 1994 Act by virtue of section 18(1). Any supplies made by such a person would not therefore be caught by the proposed amendment. To catch such cases is the specific purpose of the measure. 
I considered this issue carefully because of the importance of the warehouse arrangements in the clause. Responsible and compliant taxpayers should not be affected in any way, but it is necessary to ensure that we catch the taxpayers who are trying to get around the rules. A reasonably large amount of money—£25 million—is involved. Perhaps the hon. Member for West Suffolk will be satisfied and withdraw his amendment if I say that I share his concern that the compliant taxpayer should not face additional challenges; however, I do not believe that they will do so under the clause. I am more than happy to give an assurance, as I do on all anti-avoidance measures, to keep the issue under careful review. 
The Government proposals are based on schemes that we have seen and challenges that have been made. I assure the hon. Gentleman that, unfortunately, his amendment would enable a taxpayer to circumvent our intention. I hope that, having probed the Government's intention, the hon. Gentleman will agree to withdraw his amendment. If he does not, I shall ask my hon. Friends to oppose it.

Richard Spring: I am grateful to the Paymaster General for her reassurances. I think that the definition is too wide, but I accept her assurance that she will keep the matter under review. I do not wish to press the issue any further and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Clause 1 ordered to stand part of the Bill.

Clause 2 - Cars: determination of consideration for fuel supplied for private use

Question proposed, That the clause stand part of the Bill.

John Healey: Sir Nicholas, I welcome you and your co-Chairman. Based on my experience of other Committees, let me say that I appreciate to the firm and fair way in which you conduct proceedings. I look forward to serving under your chairmanship and that of Mr. Cook.
Clause 2 is modest and straightforward. It is designed to provide the flexibility for the VAT fuel scale charge system to be amended to include a charge based on a vehicle's carbon dioxide emissions. The fuel scale charge system is a business facilitation measure that offers a simplified method of taxing the private use of a fuel when a vehicle is used for both business and private purposes. Without such a system, taxpayers would have to keep a full record of mileage driven in order to apportion the tax charge between private and business motoring. Taxpayers can choose to operate the normal rules and keep such detailed mileage records if they wish, but, unsurprisingly, most businesses choose to apply the fuel scale charge. 
In broad terms, the system provides the taxpayer with a figure for the average fuel expenditure on private mileage, the calculation of which is based on private motoring data. Business tax payers use that figure to calculate an output VAT charge to account for their private mileage. The current charge is based on a combination of engine size and type of fuel. Clause 2 gives the flexibility to reform the charge to one based on CO?2? emissions, which would align the VAT fuel scale charge with the Government's other reforms to transport taxation in order to support our environmental objectives on climate change and air quality and to encourage a switch to less polluting cars through tax incentives and other measures. 
The proposal is entirely consistent with the action that we have taken since 1997 and with our reforms to vehicle excise duty in 2001, to company car tax in 2002 and to the direct tax system for fuel scale charges in 2003. Let me clear: our objective in making the change is purely environmental, no more, no less. It is not intended as a revenue-raising measure. Any change to a CO?2? basis for the VAT fuel scale charge will be revenue neutral overall. 
As members of the Committee would expect, Her Majesty's Revenue and Customs has already been discussing with business the proposed change to basing  the fuel scale charge on emissions. We have heard useful views in those discussions and the informal consultation, which we will continue before publishing any regulations to make the reforms that are provided for in clause 2. It is sensible to align the VAT system more closely with the direct tax fuel scale charge. It is sensible that businesses account for direct tax and VAT on fuel where possible on a consistent basis. It is obviously sensible that the industry has the opportunity to discuss the details of any scheme. 
The flexibility contained in the clause acknowledges the need to secure a derogation from the European Commission before we can introduce such a scheme. It also offers the opportunity for HMRC to design an effective scheme, following detailed discussions with the industry. I commend the clause to the Committee.

Richard Spring: I apologise to you, Sir Nicholas. It was remiss of me not to add my congratulations. I remember that when you were accorded a knighthood, I said that you were well on your way to becoming recognised as a living national treasure.

John Healey: There is no VAT relief on being a living national treasure. [Laughter.]

Nicholas Winterton: I thank the hon. Gentlemen very much. They need not go on.

Richard Spring: I thank the Financial Secretary for his explanation, and I am pleased that he has discussed the change with and consulted the business community. As he indicated, the clause paves the way for fuel scale charges—the notional VAT charge for fuel made available by employers to employees for private use—to be based on CO?2? emissions rather than engine capacity. It will penalise less efficient cars. It appears sensible to us, as it aligns the VAT bandings closely to those used for benefit in kind taxation.
However, will the Financial Secretary comment on what implication, if any, he thinks the measure will have for the Government's pursuit of a road pricing scheme?

John Healey: None whatsoever.

Stephen Williams: Sir Nicholas, as this is the first time I have taken part in a Standing Committee, forgive me if I do not do things in the right way. We are not sure when to bob up or catch your eye. I have not known you long enough to be sure that you are a national treasure, but you and your wife were very kind to me in the Tea Room on my first day, when I was a bit lost, and I thank you for that.
I have a question to ask the Financial Secretary. It makes sense to us to align the direct tax treatment of an employee and an employer in respect of a benefit in kind. That treatment was introduced a few years ago. I wonder, however, what studies the Treasury has commissioned of whether the environmental objectives of that move have been met—whether the fleet purchasing decisions of fleet managers have been in any way affected by the changes to direct taxation, or whether the preferences of the company car users have been affected. Such a study would enable us to see whether tax changes that are intended to have environmental benefits actually have that effect.

Mark Field: Although we do not wish to engage in a fully fledged debate on road charging, I support the comments made by my hon. Friend the Member for West Suffolk. The Financial Secretary assures us that the proposals will have a degree of revenue neutrality, on the basis that there will be some additional income because of additional CO?2? emissions. Can he give us some indication of which vehicles will therefore save money and, as a result, reduce Treasury income?
It would be worth while if the Financial Secretary were to comment, at least briefly, on the broader range of policies. He justified the change on the basis of consistency—the golden thread that has run through the Government's thinking on tax matters over the past six or seven years. There has been new thinking on road pricing; which affects many folk in my London constituency, and it is important that people are brought along with such thinking. If the measure is regarded simply as a revenue raiser—I am sure that the Financial Secretary would not suggest that it is that and that alone—it will have little public support. It is important that the Financial Secretary considers which aspects of good environmental behaviour will save taxpayers money, as well as which aspects of behaviour will be penalised.

John Healey: I welcome the welcome that both Opposition spokesmen have given to the principle of the clause and their endorsement of it as a sensible policy that moves things in the right direction.
I welcome the hon. Member for Bristol, West to the Committee. It is clear from his biography that he brings to it significant professional experience of tax affairs, which he gained before being elected to Parliament. I look forward to hearing his contributions to our debates. I say to him that we are careful to monitor the impact of changes we introduce, particularly when they reform the basis of the taxation system, and that for substantial changes we usually put in place a significant process of evaluation. 
I think that the hon. Gentleman and other Committee members will appreciate that the long-term impact of the sort of changes that have been touched on this morning might take some time to become clear. However, the Inland Revenue's initial evaluation of the company car tax reforms that was published alongside the Budget in 2004 shows that, as far as we can trace and quantify, the tax has had two significant effects, both of which are environmentally beneficial. It has led to a reduction both in the amount of business mileage that is driven and in the carbon dioxide emissions of the company car fleet. Both were key purposes of the reforms. We will monitor the impact of the reform as part and parcel of our evaluation of such tax changes. 
In response to the hon. Member for Cities of London and Westminster I say again, clearly and emphatically, that the measure is not designed as a revenue raiser. He asked which vehicles will produce a tax saving for their drivers or for the businesses that have them as part of their fleet. That will depend on the precise details of the design of the scheme, which  we are currently discussing with the industry. If he looks at the structure and design of the scheme that we have put in place for VED—or, indeed, for the company car tax—he will see that it is scaled in a way that gives incentives and signals to encourage people to drive more fuel efficient and less polluting cars. We want the same design for this scheme. 
I fear that I would stray beyond the terms of clause 2 were I to get into an exposition of road pricing, but perhaps I can answer the hon. Gentleman's question in the following way. Clause 2 is a further reform that is consistent with and moves in a similar direction to the reforms we made to vehicle excise duty in 2001, company car tax in 2002, and the direct tax fuel scale charge in 2003. Our aim in the detailed design of this scheme and the reforms that we have already put in place is consistency in this part of the tax system—consistency in terms of the signals given to businesses and company car drivers, the incentives that have an impact on behaviour where we can put those in place, and the way in which businesses administer the schemes that we establish. 
Clause 2 ordered to stand part of the Bill.

Clause 3 - Credit for, or repayment of, overstated or overpaid VAT

Richard Spring: I beg to move amendment No. 61, in clause 3, page 5, line 8, leave out 'relevant date' and insert
'last day of the month next following the end of the next prescribed accounting period'. 
The amendment seeks to tie the rules in the normal three-year time limit for VAT in respect of claims and assessments: that is, three years from the day that the relevant VAT return should be submitted, being a month after the end of the accounting period. At present the clause runs for three years after the period ends.

Dawn Primarolo: The clause provides for the extension of the defence of unjust enrichment by the Revenue and Customs to all claims for VAT credit where the tax has been overcharged and over-accounted for in error. Under the existing law, the defence is available only where claims are made for repayment of VAT that was overpaid but was not due. Inevitably, the time limit for such claims begins to run from the date the tax is overpaid, whereas the time limit for correcting errors for the Revenue and Customs to assess in respect of under-declared VAT runs from the end of the prescribed accounting period in which the error occurred.
Where VAT has been charged in error, clause 3 marks a shift from claims being made for repayment of overpaid VAT to claims being made for a credit of VAT that has wrongly been accounted for. The clause aims to ensure that there is consistency and simplicity for the taxpayer as to when the three-year time limit runs from. Having broken the link with payments, it is sensible for the three-year period to run from the end of the prescribed accounting period in which the  accounting error was made. Accordingly, that is what the clause does. 
Unfortunately, the amendment fails to define from which prescribed accounting period the three years should run and fails to take account of the existing three-year limitation period on the correction of errors and the three-year limitation period that the Revenue and Customs has for assessing under-declared tax. The amendment is therefore not justified. I understand how difficult it is to draft amendments to the Finance Bill. I think that the hon. Gentleman was looking for consistency by ensuring that the same rule applied and that the three years started at the same point. Unfortunately, the amendment cannot be justified because it does not do that. It makes sense for all statutory means of error correction to be subject to the same time limit, and that is what the clause does. 
I reassure the hon. Gentleman that businesses will know clearly about the time period; it will be the same period from the same starting point, and that is wholly justified where we are ensuring that the defence of unjust enrichment is covering all areas and time periods. 
I hope that the hon. Gentleman will accept that this is a probing amendment and will withdraw it. If he feels unable to do so, I will regrettably have to ask my hon. Friends to oppose it.

Nicholas Winterton: Before I call on the hon. Member for West Suffolk to respond, I should say that every Committee member will have spotted that I failed to turn over the page while reading out the amendment being debated. I apologise to the Committee.

Richard Spring: The Paymaster General was correct to say that we were trying to establish some consistency. As she will accept, the VAT rules are complicated and bureaucratic; we were simply trying to get some order into the issue. I accept her point about the distinction, and the assurances that she has given. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Clause 3 ordered to stand part of the Bill. 
Clauses 4 and 5 ordered to stand part of the Bill.

Clause 6 - Disclosure of value added tax avoidance schemes

Question proposed, That the clause stand part of the Bill.

Richard Spring: This measure extends the scope of the disclosure regime to situations in which the VAT advantage does not affect the taxpayer's VAT return—for example, because the VAT relates to exempt supplies and the scheme is intended to reduce the amount of irrecoverable VAT that is effectively a straight cost to the business. The definition is also extended to cover a reduction in the amount of VAT incurred by non-taxable persons. That will bring offshore arrangements that were not previously caught by it within the scope of the disclosure  regime. That, of course, will mean an increased compliance burden for affected taxpayers.
It is interesting that the VAT disclosure regime is continuing to request the disclosure of schemes, but no action is being taken to introduce any anti-avoidance legislation in response. That may be because there is no possibility of amending UK legislation within the European Union directive or because Her Majesty's Customs and Excise is awaiting the outcome of certain European Court of Justice cases to determine whether it has sufficient grounds to introduce anti-avoidance legislation. I should like some clarification on that point, the theme of which will consistently run through our proceedings. 
One of the more contentious issues arising from the redefinition of a tax advantage is that under the existing rules only taxable persons are required to notify a scheme when a tax advantage arises. Therefore, the onus is placed on the supplier to notify HMRC when a recipient of the tax advantage is not registered for VAT. That may not be possible if transactions pass through several third party companies before the end recipient benefits. Again, additional burdens are placed on legitimate businesses. 
There is a lack of Government activity on disclosed VAT avoidance schemes. At HMRC's large business forum in May, it indicated that it had received details of more than 700 VAT avoidance schemes. The Government have not sought to close down any of those in this or the previous Finance Bill. On Second Reading of the Finance Bill, the Paymaster General cast doubt on that number of 700, which had been raised by my hon. Friend the Member for Runnymede and Weybridge. Yet the statistic is there for all to see in an Inland Revenue presentation on the Inland Revenue website: 729 VAT schemes have been disclosed. 
In the same large business forum, HMRC debated the tax gap—that is, the tax not collected due to non-compliance, defined to include tax avoidance. The Government's apparent inaction appears to be fuelling the tax gap. It is possible that concerns about EU law are once again preventing the Government from closing down some of the VAT avoidance schemes. If the Government are not going to use the VAT disclosure scheme to close down avoidance, should not those rules be reduced, to remove, at least, the compliance burden on business and enable HMRC to concentrate on more fulfilling matters? 
I ask one final question. Why are the Government not using the information gathered under the 700-plus schemes to take action to shut down the tax gap?

Dawn Primarolo: Let me explain clause 6 as it relates to schedule 1 in terms of the two principles. I will then respond to the questions raised by the hon. Gentleman. If we are to take clause 6 and schedule 1 as one debate, perhaps I should wait until other Members have spoken. Alternatively, would you like me to respond now, Sir Nicholas?

Nicholas Winterton: They are down for separate debate. I was aware that the hon. Member for West Suffolk was probably straying marginally into schedule 1, but at  this early stage of the Bill's consideration I was using the Chairman's discretion.

Susan Kramer: I thank you for your indulgence, Sir Nicholas.
We have also had conversations with a number of parties who are concerned that they expend a huge amount of time and effort complying with these particular rules and regulations and produce information that seems to go into a pot somewhere and never results in any action by HMRC. They appreciate that HMRC has been willing to meet and to talk, but is this not a good example of where consultation in much greater depth in advance would have avoided this process of businesses constantly filing and providing information that appears to be of no particular relevance or use to HMRC?

Nicholas Winterton: Order. It is clear that Members are going to involve schedule 1 in this debate on clause 6. I am quite happy to have a wide-ranging debate on the clause and to include matters involved in schedule 1, but I shall put the question on schedule 1 formally without debate, if that is agreeable to the Committee.

Susan Kramer: My apologies, Sir Nicholas.
My question to the Minister is simple. Given that much work has gone into providing information that appears to go nowhere, would it not be wise at this point to simply set aside many of the new provisions that are being proposed until such time as HMRC and the Government have an idea of what they want to do with the information that is gathered? Reducing the burden on business gives far more credibility to the entire process of regulation. This would be a good opportunity to start taking that message in a practical way to the business community.

Dawn Primarolo: Let me deal first with clause 6 and schedule 1. I will then respond to the more general point about the operation of the disclosure rules and the submissions to HMRC in answering the points made by the hon. Members for Richmond Park and for West Suffolk.
Clause 6 and schedule 1 provide for two additional disclosure rules, which follow on from the introduction of the disclosure rules in the Finance Act 2004. The hon. Members for Richmond Park and for West Suffolk were not present at that debate, but fortunately I was. The Committee's view at that stage, and indeed Parliament's view and that of tax administrations around the world, involved concern about an increasing tax gap—the non-collection of taxes, particularly as a result of avoidance. In a number of Finance Bills we have acted, as did the previous Government, to reduce that loss.

Philip Hammond: Will the Paymaster General give way?

Dawn Primarolo: I shall come to the hon. Gentleman's question of what we are doing with the information, but may I first answer the points already put to me? I will then be more than happy to give way to him. It is important that the Committee is focused on what is in the Bill, what we are doing, and how that  interacts with the laws previously passed by Parliament. I will try to set that out.
The first change is to extend the definition of tax advantage to include circumstances in which the scheme is intended to reduce irrecoverable VAT—and a number of avoidance schemes are intended to do that. Those schemes are artificial and provide the business concerned with an unfair competitive advantage over compliant taxpayers. The disclosure rules identify where legislation or changes are particularly required. 
The second change in clause 6 and schedule 1 is a simplification measure. It provides that a business will not have to disclose a listed scheme if it had previously notified the authorities of the use of the scheme as a hallmark scheme. That ensures that when the Treasury designates new schemes, businesses will not have to notify us of use of a scheme if they have already done so. That is important. So, the clause and schedule 1 build on and strengthen the disclosure provisions introduced by the Government in 2004. 
The disclosure regime is a key part of the Government's strategy to tackle avoidance and ensure fairness. I seem to recollect that the principle was accepted by this Committee and the House. Other illustrious Committees of this House, including the Public Accounts Committee and the Select Committee on the Treasury, have also been pressing the Government very hard to deal with avoidance. The disclosure regime provides Her Majesty's Revenue and Customs with better information, which allows for a faster and more targeted response to abuse of the tax system. 
I shall give way to the hon. Member for Runnymede and Weybridge before I move on to what we are doing with the information that we have.

Philip Hammond: I am grateful to the hon. Lady, and look forward to hearing about what she is doing with the information. She said, when I first sought to intervene on her, that the Government had acted to recover the loss from such tax avoidance. Can she give some suggestion of the amount of VAT recovered as a result of VAT anti-avoidance legislation? To what extent have the Government succeeded in closing the VAT gap?

Dawn Primarolo: I am happy to send the hon. Gentleman the annual accounts of the Department; if he looks at them—and, indeed, at the recent considerations of the PAC from before the election—he will see the substantial effect that such legislation is having. None the less, it is important to ask what we are doing with the information. The Committee must understand that disclosure is not the only method available to the tax authorities pursuing those trying to avoid tax. It is an additional tool that was added to those that could already be used.
The rules are working, and I shall explain how. The hon. Member for West Suffolk is quite right: the quantity and quality of the disclosures that have arisen from the measures are as we expected. In fact, almost 800 disclosures about VAT have been received since the rules were introduced. For VAT, the main value of providing information is to inform compliance, which  is going on regardless. It is to inform how we use our risk assessments and to enforce compliance. All information received is risk-assessed and prioritised. Further, hallmarks provide an early warning of new schemes and, together with listed schemes, provide information about who has used these schemes. 
One of the discussions that features in every Finance Bill and every debate on the Floor of the House, is that of anti-avoidance measures and the need to get the information to ensure that they are appropriately targeted. It was a problem for the previous Government as well. It is very much the sort of debate that we were having in earlier discussions on clauses: whether it was targeted correctly, and whether it was getting to the non-compliant taxpayers without causing difficulties for compliance. 
Hon. Members should not believe that disclosure automatically means legislation. Disclosure means that we can respond to the avoidance in a number of ways, of which legislation is one.

Philip Hammond: Will the Paymaster General give way?

Dawn Primarolo: If I may finish the point and tell the hon. Gentleman what the others are, then I shall be happy to give way.
The other ways for HMRC to assess the tax due are to do an assessment, and to litigate against those schemes that they do not believe will work under existing law. Some of the disclosures are challengeable under existing law, and that is the correct way to proceed. The Government have legislated to close some schemes. For example, the ones that came into force on 1 August 2004, to address the listed scheme 6—that is the group's third party supplier. The disclosure provisions ensure that HMRC has the intelligence to ascertain whether the scheme, or similar schemes, may be in use. This is about them being marketed and used, not necessarily to bring forward legislation. 
The suggestion that the information is not being acted upon because there is not legislation is erroneous. HMRC can use assessment and litigation, and where a situation needs to be addressed in law we bring forward changes to Finance Bills. That is entirely appropriate given the powers that we already have. 
HMRC is currently investigating the returns of businesses that have notified the use of these schemes under disclosure provision, and is using assessment for due tax as the solution. Assessments are expected to prove effective in combating schemes and recovering the lost yield to the Exchequer. The simple proposition is that if businesses can have it demonstrated to them that their scheme does not work under current law, they will not continue to use them.

Philip Hammond: I hear what the Paymaster General says, and I understand it. She must recognise, however, that the same arguments apply to direct taxes. The Revenue has the scope to raise assessments  on businesses, yet there is a marked asymmetry in the Government's reaction to disclosure of direct tax avoidance schemes and their reaction to disclosure of VAT avoidance schemes. There is a raft of measures in this Bill dealing with the disclosed direct tax avoidance schemes. There is nothing dealing with the disclosed VAT avoidance schemes.
Can the Paymaster General tell the Committee what the Department's estimate of the tax loss from the 800—she says—disclosed avoidance schemes is, so that we can get some idea of the scale of that loss as against the scale of what it expects to recover from shutting down disclosed avoidance schemes for direct taxes, the estimate for which we have in the Red Book?

Dawn Primarolo: The hon. Gentleman has to understand the difference between VAT and corporation tax. One is historical, one is real time. He puts it as the ''tax loss from 800 schemes''. If the Department is notified and is raising assessments for tax to be paid, and if the Government are pursuing litigation, that tax is not lost. The difference between VAT and corporation tax, and therefore the difference between the disclosure approaches, exists in order to prevent the loss before it occurs. What we are trying to address is the nature of the assessments of VAT and the time period over which it is paid—real time, as opposed to the historical information that we receive when we are dealing with corporation tax.

Stephen Hammond: You spoke about the responses of the Government to disclosures under the 2004 VAT avoidance schemes. You also spoke about assessment litigation and bringing forward new legislation. You said that—

Nicholas Winterton: Order. I did not say anything; the Paymaster General did.

Stephen Hammond: I am sorry, Sir Nicholas. The Paymaster General stated several times that the Government would use assessment to combat certain schemes. She also said that 800 schemes had now been disclosed. I wonder how many of those 800 schemes have been tackled by assessment. The Paymaster General also spoke about the tax gap—the amount not collected through non-compliance, which included avoidance. However, she has not yet answered the point made by my hon. Friend the Member for West Suffolk about whether there is any impediment to UK legislation because of the rulings of the ECJ. Can she answer those two points?

Dawn Primarolo: To be clear, I understand the hon. Gentleman to be suggesting that the disclosure rules breach, or would be in conflict with, ECJ rules.
The first thing to be said about the disclosure rules is that taxpayers know what they are doing when they decide to use these schemes. The point of disclosure is to provide the information to the Department when those schemes are being used, so that it can use assessment. 
Assessment means that we disagree with what the taxpayer says, and that the tax is raised and paid. If the disagreement moves on to litigation—I should point out that we are talking here about rules that were introduced very recently—that can take some time to  pass through the courts, and it can go beyond that. As the hon. Gentleman knows, there are a number of cases before the ECJ, and we will have to wait and see what the ruling is on them. 
Let me explain the purpose of the disclosure rules that are in the Bill and those that the House passed last year. They are about providing the information so that the tax authorities can respond by challenging when things are not within the law—or their interpretation of it—which will be assessment litigation if things come to that, and they are also about introducing legislation where that is considered necessary. Having become aware of certain schemes, we have now listed them as declarable—when using them, the taxpayer must inform. That is an entirely appropriate way to proceed. The hon. Gentleman and his friends have to address the following question: what are the appropriate tools for the tax authorities, acting on behalf of the vast majority of compliant taxpayers? What should be our response to the few taxpayers—although there are not many of them, they can cause much expense—who continue to use our legislation in ways that it cannot or should not be used? Disclosure is about giving us the information to respond to that. 
As I said to the hon. Gentleman, these rules were introduced in 2004 legislation, and they became operable at the beginning of the current year. They are the correct way to proceed. If the hon. Gentleman disagrees, he needs to explain how we can ensure that we have the information to tackle the schemes that are considered abusive, without introducing for every single taxpayer submissions to the tax authorities of a kind that I think all Committee members would object to.

Stephen Hammond: I understand what the right hon. Lady said, but earlier she made the case that a number of the 800 or so schemes had been covered by assessment and listing as disclosable. I am trying to get some measure of how many of those schemes are covered, because I am still not clear about that.

Dawn Primarolo: That is what happens if hon. Members intervene on the Minister, thereby stopping her before the point has been made.
I do not have the figure showing how many schemes we have raised assessments against, but I am happy to write to Committee members to let them know—although I will not be able to tell them clearly. I think that the hon. Gentleman wants to know that we have moved to deal with the question of assessment, so that the circle of assessment and litigation, which is the next step, and the rules are operating together.

Stephen Hammond: I am grateful for the right hon. Lady's offer to write to the Committee. That was my point. However, she would not have come to that point, so my intervention was probably correct.

Dawn Primarolo: When a Minister is still on her feet and takes an intervention it normally indicates that there is something more to be said.
Opposition Members still have not yet addressed the central point: how do the tax authorities receive the information that they need from those taxpayers  who would seek to use avoidance in advance of that happening, and thereby make it clear that avoidance does not work and ensure that the tax is paid? That is a defence for the Revenue and is preventing the loss of greater amounts of revenue. 
To give a complete picture of the procedure, I circulated information to the Committee advising it that the changes are made in regulations, which are dealt with by affirmative resolution, so hon. Members, in this Committee and the House will have an opportunity to consider the proposals when the regulations are laid.

Richard Spring: Of course we understand the importance of closing down VAT avoidance structures, but it is important to deal with a thread that runs through the whole issue. Perhaps the Minister will deal with the point that I was trying to make, which is about an assessment by the Government of the impact of EU law in closing down the VAT avoidance structures, given the pattern in the ECJ. That is of profound importance in terms of the impact on domestic legislation and practice.

Dawn Primarolo: The hon. Gentleman asks me to speculate on decisions that have not been made and say how they might impact on domestic law. I cannot do that. I have to ensure—as do my hon. Friends the Financial Secretary and the Economic Secretary—that provisions in the Finance Bill allow the appropriate balance, which is a proportionate and reasonable one, in order to get the information that the tax authorities need to ensure that the tax system, as currently agreed by Parliament, operates correctly. Disclosure provides that for us. If the hon. Gentleman wishes to raise a debate on the ECJ, he is welcome to do so, but that is not pertinent to the clause.

Philip Hammond: Moving to a different point, although I might have misunderstood it, we are to extend the scope of the disclosure rules to include schemes operated by people who are not VAT registered, which is an innovation. I understand that the person responsible for making the disclosure will, of necessity, be the VAT-registered supplier who supplies the non-registered person who is gaining the advantage. Can the Paymaster General confirm that that is correct and tell us what she will do to avoid a situation in which a supplier might have an obligation to disclose, but is not in possession of all the pertinent facts to make a full disclosure? Will that VAT-registered supplier find himself vulnerable to prosecution because he is not in possession of the information from his customer that HMRC wants to have?

Dawn Primarolo: I cannot envisage those circumstances arising. The purpose of disclosure is to ensure that the VAT due to the UK tax authorities through the everyday use of the VAT system is provided for. In those circumstances, the advice on which I must always act is that the disclosure rules work and provide the safeguards that are required to ensure that the authorities have the information to decide whether they raise an assessment or pursue matters through litigation.

Philip Hammond: Can the Paymaster General confirm that when a scheme is operated by a non-registered person with the intention of reducing irrecoverable VAT—the point to which she referred earlier—the registered person who supplies that person will have the obligation to make the disclosure?

Dawn Primarolo: Yes. The hon. Gentleman must understand that there has to be a party to the transaction and that that party is someone who is registered for VAT. The measure is about the interaction of the advantage that the person seeks to achieve. The rules provide for that. If the system has been artificially manipulated, there will be a loss of revenue.

Philip Hammond: I am seeking an assurance that VAT-registered suppliers will not be in a position of non-compliance with the disclosure rules because their customer is doing something dodgy with the supply. In the example under discussion, their customer is an exempt person who is not registered for VAT.

Dawn Primarolo: In order to take part in the scheme, that person would have to be a knowing and willing participant in it, so it would not be possible for the person not to know what was going on. It is the nature of the scheme to interact. Under the rules, it is not conceivable that the registered traders who would be caught could be knowing and willing participants in the scheme to reduce their VAT liability.
Question put and agreed to. 
Clause 6 ordered to stand part of the Bill. 
Schedule 1 agreed to.

Clause 7 - Charge to income tax on lump sum

Philip Hammond: I beg to move amendment No. 64, in clause 7, page 8, line 9, after '(5)', insert 'below'.

Nicholas Winterton: With this it will be convenient to take amendment No. 65, in clause 7, page 8, line 30, leave out from beginning to end of line 34.

Philip Hammond: These two small amendments would clarify measures that we believe have been poorly drafted. Amendment No. 64 deals with line 9 of the clause, which states:
''For the purposes of the Tax Acts (including subsection (5)), a social security pension lump sum . . . is to be treated'',
and so on. On first reading of the clause, I and others whom I have consulted were not clear to which subsection (5) reference was being made. Looking at it more closely, it is clear that the sentence is intended to mean that 
''For the purposes of the Tax Acts . . . a social security pension lump sum''
will be defined in the way set out in subsection (2) for all purposes, including the purposes of subsection (5). So, the ''subsection (5)'' referred to is not a subsection (5) in the ''Tax Acts'', which is a plural concept, but subsection (5) of clause 7. The amendment would simply insert the word ''below'' to make it perfectly  clear—well, clearer—that the wording refers to subsection (5) below. 
When I looked at the clause again this morning, it occurred to me that the wording would perhaps be even clearer if it read: ''For the purposes of the Tax Acts, including for the purposes of subsection (5) below, a social security pension lump sum'' and so on. The amendment is simply intended to clarify the not-very-clear drafting, and to make it plain that all subsection (2) does is refer the definition of 
''social security pension lump sum''
to subsection (5). 
Amendment No. 65 raises another small but important point. The inclusion of subsections (6) to (8) is, dare I say, revolutionary. Is the idea that at the end of every clause there will be a series of subsections telling us what future sections will do? That would be like watching a television serial in which, at the end of the week's episode, there is a series of clips showing what is coming in future. Subsections (6) to (8) do not seem remotely necessary. As far as I am aware, those provisions do not accord with precedent, and if we applied the principle consistently it would massively bulk out the volume of legislation with which we have to deal—which is already, frankly, too large—and bring yet more pages of tax statutes into force. I can see no reason for the subsections, and I am rather concerned about this architectural innovation.

Rob Marris: Does the hon. Gentleman not think that his amendments are somewhat contradictory? First he says that the Bill is too long and that he wants to take out subsections (6) to (8) under amendment No. 65, then he says that it is too short and so tables amendment No. 64.

Philip Hammond: Not at all; it is absolutely essential that legislation be clear. Where there are references to subsections, it needs to state clearly of what they are subsections. Much of the Bill amends other legislation and, particularly in the schedules, the references are often to clauses, subsections and paragraphs not in this Bill, but in existing Acts of Parliament.
If the principle apparently observed in subsections (6) to (8) were consistently applied, it would be burdensome. Logically, clause 1 would have subsections (1) to (71) setting out what every clause did, and so on. Only clause 72 would be spared the need to set out what future clauses did. I can see no reason for subsections (6) to (8). I have never seen such provisions in a Bill before, as far as I am aware, and I would like to understand why it is necessary to spell out what future clauses will do in an initiating clause.

Nicholas Winterton: Order. Because there is a problem with the sound, I have been asked to suspend the sitting.
Sitting suspended. 
On resuming—

Nicholas Winterton: The suspension is now at an end. We were let down by technology, but hopefully it has been  put right. I hope that none of the valuable words uttered in the debate have been missed. I think that the hon. Member for Runnymede and Weybridge had just resumed his seat and I was about to rise to my feet to propose the amendment.
I welcome to the Committee the Economic Secretary to the Treasury.

Ivan Lewis: Thank you very much, Sir Nicholas.
 I am delighted that the nation was not denied the opportunity to have the preceding hour of deliberations recorded—it would have been extremely disappointed. 
I must also apologise, Sir Nicholas, for inadvertently stripping you of your knighthood during the debate on the Floor of the House. To do that to a living national treasure would surely be unforgivable.

David Ruffley: Resign!

Ivan Lewis: That call normally comes from the Benches behind me.
The previous time I appeared in a Committee such as this was during the consideration of the Higher Education Bill. I sat there for three weeks alongside the then Minister for Lifelong Learning, Further and Higher Education, my right hon. Friend the Member for Kingston upon Hull, West and Hessle (Alan Johnson), and after three and a half weeks I got to speak on a clause. He subsequently became the Secretary of State for Work and Pensions and is now the Secretary of State for Trade and Industry. If my right hon. Friend the Paymaster General and my hon. Friend the Financial Secretary stick with me, I am sure that they will have a bright career ahead of them. 
I shall quickly say something about the purpose of the clause, which provides for the taxation of a social security pension lump sum. It is also important to say that the rules in clauses 7 to 10 ensure that pensioners are not put into a higher tax bracket and do not lose any of their age-related income tax allowances as a direct result of taking the lump sum. 
Turning to the amendments proposed by the Conservatives, I understand the concern of the hon. Member for Runnymede and Weybridge, but amendments Nos. 64 and 65 are genuinely unnecessary. The insertion of the word ''below'' by amendment No. 64 would add nothing to the clause. The reference to subsection (5) of the same clause is perfectly clear without the additional word proposed in the amendment. As my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) pointed out, amendment No. 64 contrasts with No. 65, which seeks to remove subsections written in a particular way—in the tax law rewrite style. There are already three Acts that demonstrate that approach and are designed specifically to signpost later clauses, thereby increasing understanding of how the four clauses sit together. 
It would be a retrograde step to remove something that is designed to make legislation far more fit for purpose, understandable and clear, so that  stakeholders and others can understand how it is put together. I ask the hon. Member for Runnymede and Weybridge to withdraw the amendment.

Philip Hammond: Clearly, there are some things to die in a ditch for, but this is not on my list. I find the Minister's explanation somewhat baffling. The phraseology in subsection (2) is not at all clear, and as for the idea of signposting what is in subsequent clauses, that concept has not even been consistently applied throughout the Bill. We are all in favour of trying to get clarity in the Bill, but later I shall raise, for example, the definition of ''Tax Acts'', which is integral to an understanding of clause 7 but is not defined in the Bill.
Although I hear what the Minister says, I suspect that we shall have to agree to differ about the best approach to architecture and achieving clarity. I beg to ask leave to withdraw the amendment. 
Amendment, by leave, withdrawn.

Philip Hammond: I beg to move amendment No. 66, in clause 7, page 8, line 34, at end add—
'(9) In this section ''total income'' shall mean total income after deduction of the relevant personal allowance mentioned in section 257 ICTA 1988'. 
This is a more substantive issue, although it is a matter of clarification. The clause introduces the concept of total income, which is not defined in the Bill, unless I have missed the definition. It might seem obvious what a person's total income is, but for the purposes of this clause, and in order to give effect to what the Government have announced on several occasions and clearly intend to do, ''total income'' must mean total income after the deduction of all applicable personal allowances. 
The intention is clearly to use an individual's top rate of tax as the rate that should be applied to the lump sum. Somebody aged 66 whose income is £7,500 would have a top rate of tax of 10 per cent., because their taxable income would be £410 after the personal allowance. The £410 is comfortably within the lower 10 per cent. tax bracket currently of £2,090. The question for the Minister is whether the Bill makes that clear. Total income, we understand, is defined in section 835(1) of the Income and Corporation Taxes Act 1988 as the income from ''all sources''. From that, under section 257 of that Act, the taxpayer is entitled to deduct his personal allowances. The Act goes on to present a mechanism for charging tax at the various rates. 
The Minister will have seen the briefing by the Law Society on the issue. It thinks that the problem is that the clause has been based on the terminology used in the 1988 Act and because of the way sections 257 and 835 taken together work, it is possible that the definition of ''total income'' could be misconstrued to mean what it would mean to you or I, Sir Nicholas: the individual's total income. The Government's intention in this case is clearly that we must have a definition of ''total income'', which is to be income taken after the deduction of the appropriate personal allowances.

Rob Marris: I am aware of the briefing by the Law Society, of which I am a member. The Chartered Institute of Taxation has also raised concerns. In the amendment, the hon. Gentleman suggests a definition of ''total income'' that seems to be contradictory to the definition of ''total income'' contained in section 835 of the 1988 Act. Therefore, were his amendment to be agreed to, there might be contradictory definitions in legislation. That would not be helpful.

Philip Hammond: The hon. Gentleman may well be right. I do not claim any great pride in authorship of the amendment. I also confide that I strongly suspect that it will not be agreed to. My purpose in tabling it was to obtain a clear, on the record, statement from the Economic Secretary to the effect that in calculating the total income of an individual for the purposes of the clause, all personal allowances will be deducted from total income from all sources before applying the formula in subsection (5) to determine the rate at which the lump sum is taxable.
Of course, we could seek greater clarity in the Bill, but I know that the words ''greater clarity'' and ''Finance Bill'' do not necessarily go together comfortably. It seems that a number of the definitions that are being used are to be found elsewhere in tax legislation. If we could get an unambiguous statement on the record from the Minister about how the measure will work, that would be satisfactory. 
 It is my understanding that the Revenue has privately made it clear that the intention was that the applicable rate of tax would be ascertained by examining the individual's total income after the deduction of personal allowances. That was clearly the intention. We now need someone of the Minister's exalted status—with the benefit of a working Hansard recording mechanism—to place that on the record for posterity.

Stephen Williams: If this amendment were to be pressed to a Division, we would be pleased to support it in the interests of clarity in the Bill. The hon. Gentleman just mentioned that Finance Bill clarity is important. That is particularly important when we are dealing with a group of people—pensioners, in this case—who might not be expected to be au fait with the intricacies of the Finance Bill. Moreover, we are dealing with the state pension rather than any other sources of income, and the sort of people whose only source of income is the state pension might not be expected to follow exactly what finance legislation says.
This provision was trailed in two pre-Budget reports—those of 2003 and 2004. The 2004 report states: 
''Tax will be applied to the lump sum at the marginal rate and it will not affect any age related allowance due.''
That is a clear statement of intent as to what the legislation that is to follow should actually do; I think that that is the purpose of the annual statements that we get from the Chancellor in November of each year. It is a shame that the legislation, now that it has been brought forward, does not make that absolutely clear. 
I could cite several examples of the current legislation possibly leading to people being taxed at a higher marginal rate than their real marginal rate because the Bill's current definition of total income is insufficient to protect them. However, I will not discuss those examples, because they have been circulated to Committee members. Will the Economic Secretary make it clear that the intention is that the lump sum and the interest on it will be taxed at the individual's marginal rate after their personal allowance—and probably in this case after their age-related personal allowance? 
I have a further point on that, which I am surprised that the Conservatives did not mention in the general election.

Philip Hammond: I am surprised that the Liberal Democrats did not bother to table any amendments, if they are so concerned about these issues.

Stephen Williams: Well, we are pleased to speak to the hon. Gentleman's amendment, and we are thankful to him for tabling it.
The point in question was also made on the Floor of the House. Relevant professional institutes—and, perhaps, firms of accountants—have circulated briefing papers to all of us, and we are all in the same position: we are making statements and tabling amendments that others have put to us. I think that the hon. Gentleman has had an advantage in that they were probably put to him before they were put to us. Therefore, it is a bit ungracious to the three new members of this Committee, who have only recently received those briefings, to say what he just said.

Philip Hammond: Will the hon. Gentleman give way?

Nicholas Winterton: Order. Is the intervention relevant to the debate?

Philip Hammond: Of course, Sir Nicholas, and I would expect you to terminate it, were it not. I just thought it would be helpful to the Committee, and that it would be of particular benefit to new members of it, if I were to place it on the record that organisations such as the Law Society that circulate their comments and proposed amendments to all Committee members, including Ministers, do so without fear or favour, and that thus using their amendments as the basis of what one does in Committee is sometimes not terribly helpful. I assure the hon. Gentleman that although I quoted from the Law Society brief, that was not the primary source of the amendments that we have tabled.

Stephen Williams: I am happy to take that assertion. However, my earlier point remains valid: the three Liberal Democrat Committee members are entirely new to this process, whereas I understand that some Conservative Committee members were involved at an earlier stage of the Finance Bill's progress, when some of these amendments may have been suggested, so they have an advantage over us.
However, I want to conclude the point I was about to make. It was about the married couple's allowance as well as age-related allowances, and as the Conservative party has said that the tax system does not value marriage, I am surprised that its amendment  does not include this clarification. There will be some circumstances in which someone who is retiring has a spouse who is still able to receive the married couple's allowance. I should be grateful if the Economic Secretary would make it clear that this legislation will not disturb the married couple's allowance, as well as the age-related allowance. 
Finally, what guidance will be given to pensioners to enable them to understand the tax implications of taking that lump sum, and how the interest that will accrue over the period for which they defer their pension will be calculated?

Ivan Lewis: As a Minister, I get some pleasure from seeing the Opposition parties fight like ferrets in a sack. It is extraordinary that at this stage of a Finance Bill the two Opposition parties should turn on each other, and we Labour Committee members are sad to see that.
On a serious note, I am pleased, in response to the shadow Chief Secretary's request, to clarify the issue on the record. Total income is a statutory expression that draws together all sources of income that are taxable and from which certain deductions, including personal allowances, are then available. That net amount of income is then charged to income tax at the appropriate rates. I am happy to confirm that the rate of tax applied to the lump sum, commonly known as the marginal rate, is the one that applies to total income less all statutory deductions and personal allowances that can be deducted. 
The hon. Member for Bristol, West said that he would be pleased to support the shadow Chief Secretary if he decided to put the amendment to a vote; that would have caused a Division. Earlier, the hon. Member for Bristol, West was described as a tax expert. It is important, therefore, to place on the record not only a clarification of the position from the Government's point of view, but the consequences of the Opposition's amendments, particularly in relation to the advice that tax experts may give in such circumstances. The consequences of the amendment—tabled by the shadow Chief Secretary of the new, compassionate Conservative party and supported by the hon. Member for Bristol, West in his capacity as a tax expert—would be to exclude the blind person's tax allowance and disadvantage visually impaired taxpayers.

Brooks Newmark: Unless I am reading the amendment wrongly—if I am, I am sure that the Minister will correct me—the amendment mentions the ''relevant personal allowance''. If a person were hearing impaired or visually impaired, that would come under the relevant personal allowance.

Ivan Lewis: That is simply not the case. The amendment would exclude the blind person's tax allowance, which comes under section 265 of ICTA. Given that we have reassured the hon. Member for Runnymede and Weybridge on one point, and that no member of this Committee would want to exclude visually impaired people from the allowance, I urge the Opposition to withdraw the amendment.

Philip Hammond: On the one hand, I am grateful to the Economic Secretary for reading that clarification into the record; that needed to be done, because the Government got their drafting wrong in the first place. On the other hand, I am disappointed that he should attempt to cover up the sloppy nature of the drafting of this provision by attacking the drafting of the amendment. We shall say regularly throughout these proceedings—the Paymaster General has already said so herself—that drafting amendments to Finance Bills is not easy. If we have got it wrong, we accept responsibility, but the point that we were clearly intending to raise was that clarity was required. The Economic Secretary has delivered that clarity.
As the Economic Secretary knows, there was never any intention to exclude blind or aurally impaired persons' allowances or any other such allowances. Having looked at the Law Society brief, which refers to sections 257 and 835 of ICTA, I suspect that the hon. Member for Wolverhampton, South-West made a rather more telling point against my amendment than the Minister did from his brief.

Rob Marris: Oh no.

Philip Hammond: Those of us who know the hon. Gentleman and have enjoyed sparring with him in Standing Committees will know that he is an ambitious man; he will not thank me for that praise, but it is well deserved. The Committee will benefit from the application of his legal mind to our proceedings.
I am grateful to the Economic Secretary for clarifying the matter and removing any scintilla of doubt, and so, too, will be many groups outside the House dealing with pensioners and pensioner issues. I beg to ask leave to withdraw the amendment. 
Amendment, by leave, withdrawn. 
Question proposed, That the clause stand part of the Bill.

Philip Hammond: I should like to speak briefly, because while others—certainly the Minister and the hon. Member for Bristol, West—have spoken on the overall purpose of the clause, I deliberately did not touch on it.
Of course, we entirely accept the logic and purpose of clause 7. If we are to have a regime that encourages people to defer a part of their pension so that they can work a little longer, it is important that they should not be disadvantaged through the tax system when they do so. The Government have proposed a perfectly sensible way of ensuring that. 
Whether we like it or not, many people assume that the state pension is not taxable; I am sure that the Ministers are aware of that. We all know that it is taxable, but a great number of people believe that it is not, because they do not pay tax on it. Thus it may come as a bit of a shock to some people to realise that the lump sum will—quite properly—be taxable. There is an education issue here, and the Economic Secretary might want to say something to the Committee about what the Government intend to do to make sure that potential deferees of pensions have all the necessary  information to understand the net-of-tax ramifications of the various options open to them. 
It is unfortunate but inevitable that some people hearing about the lump-sum proposal will be confused about the interaction with the tax-free lump sums available to people with funded personal pensions; the term ''tax-free lump sum'' has a certain currency in everyday usage. There will inevitably be some who are confused about the notion of the lump sum, and who will believe that it is a tax-free lump sum in their hand. That is something else that Ministers need to make sure is quite clear. 
My next point is perhaps slightly beyond the Economic Secretary's remit, but I am sure that he has background briefings on the subject. We are talking not just about marginal tax bands and the rate of tax that will be applied to the lump sum in the period of receipt. As a result of the means-tested regime of support for pensioners that the Government introduced, many pensioners are in receipt of means-tested benefits. This is slightly wide of the Minister's remit, but can he confirm whether the same principles will apply to withdrawal of means-tested benefits, so that no one will suffer a loss of means-tested benefits in a year simply because their income spikes in that year through the receipt of a deferred pension lump sum?

Rob Marris: I think that that very point is dealt with in note 12 to clause 7 in the explanatory notes.

Philip Hammond: That is very helpful—and, I have to say, that might be the first time that the explanatory notes to the Bill have been helpful. If the answer is in the explanatory notes, the Minister will not have to wait for advice before he answers. Since he will probably be getting to his feet rather more quickly than I can look up the relevant part of the explanatory notes, I will leave the question to him if the hon. Member for Wolverhampton, South-West does not mind.
The regime that the Government have announced for allowing deferment of pension into a lump sum is an all-or-nothing regime. It is a question of deciding to continue to work for a number of years and to defer the pension until one stops working, or a point in the future. It does not seem to me that the legislation before us envisages or encompasses the possibility of allowing partial deferment of a pension. This is not something that the Government have announced any intention of doing. 
In keeping with the general thrust of Government policy, which is that retirement should be seen as a flexible option, not an all-or-nothing approach that cuts in at a fixed point in time, I wonder whether the Minister can tell us whether there is sufficient flexibility built into this legislation to cope with future changes to the lump sum regime, allowing a pensioner to defer part of their pension into a lump sum. For example, that could facilitate a pensioner's decision to continue in part-time work for three or four years beyond the age of 65, receiving a partial pension while deferring the balance of the pension into a lesser lump sum. 
Would the legislation before us be an adequate framework for dealing with a partial deferment? Probably not, because the trigger point for assessment on the lump sum, which comes in clause 8, is specified as the day on which the first benefit payment date falls. Clearly, if a person was receiving half a pension and deferring the other half into a lump sum, the trigger for the assessment on the lump sum—which is not to be paid for some years—would currently be the day on which the first benefit payment day falls, by virtue of clause 8(2). What discussions have been held between the Treasury and the Department for Work and Pensions about the possibility of this regime becoming more flexible, and has thought been given to how this part of the Bill might accommodate that?

Ivan Lewis: Other hon. Members have made this point. It is important that we communicate and promote these changes clearly, and that people understand both the implications and the benefits. That is something that we will be looking at with our colleagues in the Department for Work and Pensions.
This is a complex area. We know that people sometimes find these issues very difficult and therefore our capacity to explain them, and promote the benefit of people making the choice that we are giving them under this legislation, will be a very important issue. If we simply create the legislation and seek to incentivise such choices without explaining the potential benefits to people, we will undoubtedly underperform in terms of our intentions. We will look at an innovative and imaginative approach to the way that we get messages across in this area. 
The hon. Member for Runnymede and Weybridge asked whether the principles would apply in the same way to people on means-tested benefits. I can reassure him that those principles will apply in a consistent way, and that people on those benefits will not end up being disadvantaged; in fact, quite the contrary. That is very important.

Philip Hammond: The Minister has said something important. I was seeking an assurance of neutrality, and he has said that they will not be disadvantaged—
''in fact, quite the contrary.''
Can he explain that?

Ivan Lewis: Essentially, the contention was that people on means-tested benefits might be disadvantaged by this legislation. I am saying that they will not be disadvantaged. I am giving a neutral response to the hon. Gentleman's worries. He asked whether the principles would apply. I have reassured him that they will.
The hon. Gentleman referred to partial deferment. The Bill is introducing a choice for people in the form of a lump sum, and that is a step forward. At this stage, however, we do not want to rule out for ever the possibility of looking at partial deferment, but it is more appropriate to consider the impact of the Bill and how it influences people's behaviour. Having evaluated such matters over a reasonable time, we can then reach an informed judgment about whether partial deferment would be a good idea and whether  it would be consistent with our ambitions and objectives. 
The hon. Gentleman has made a fair point. We have already discussed trying to communicate to people the consequences of the policy. In many ways, that could cause further confusion and it could be ambiguous. It is important that we establish the principle and make sure that as many people as possible are clear about the option being available to them before we make further changes. However, we shall keep the question of partial deferral under review.

Philip Hammond: I am grateful to the Economic Secretary for what he said. One of the ways in which to reduce the burden of Bills passing through the House would be to futureproof legislation. If it were contemplated that there might be a desire in the future to extend the scheme to allow partial deferment, would it not have been sensible to draft the Bill's provisions in such a way that they could accommodate without further amendment a partial deferment regime? It would not have been that difficult; it would have just needed a different trigger for the taxable charge to apply. I am a little disappointed that the hon. Gentleman clearly recognises that the matter may come up for discussion in future, yet the draftsmen have not seen fit to provide for it in the body of the Bill now under discussion.
I have a further question for the Economic Secretary. We tabled an amendment that has been grouped with clause 71, which will be debated some time later, or perhaps not at all, about the definition of the term ''Tax Acts'' in line 9 of this clause. The term has a well-established definition under the Income and Corporation Taxes Act 1988 but, unless I have slipped up somewhere—the hon. Member for Wolverhampton, South-West will be on his feet in a microsecond, if I have—it is not defined under the Bill. Is there a mystical mechanism by which definitions from ICTA are automatically imported into the Bill? Are we to read ICTA definitions that apply to the Bill without making specific reference to them, especially under clause 71 on ''Interpretation'' where we would have expected them to be? It is important that we understand to which Acts the term ''Tax Acts'' refers in line 9 of the clause. I understand that ICTA—

Nicholas Winterton: Order. I hope that the hon. Gentleman is not seeking to include in his remarks matters relating to amendment No. 67, which we shall reach later, because I should be loth to call it a day.

Philip Hammond: Depending on the Economic Secretary's response, that may indeed be appropriate. However, since we have discussed clarity of legislation, wording and whether the architecture of ''referring forward'' under subsections (6), (7) and (8) was appropriate, it would be good if he could explain how the definition is imported into the Bill. I think that the issue will arise throughout the Bill. Depending on his response, you might well decide that we have had that discussion, Sir Nicholas.

Ivan Lewis: Sir Nicholas, it may be helpful to you and to the Committee to respond directly to the hon. Gentleman's point; it might defer some of the agony that we would face later if we did not make things clear at this stage. ''Tax Acts'' covers all tax Acts, which is covered by the definitions. I hope that makes it clearer. These issues are covered by the definitions. That deals with the hon. Gentleman's point.
The hon. Gentleman expressed disappointment that this legislation did not create a vehicle whereby at a later stage we could adopt his suggestion of deferred partial payment. Conservative Members frequently say that one problem is that there is not sufficient opportunity to scrutinise changes that the Government seek to make. By doing things this way, and not jumping to create a vehicle that would allow us to go for deferral, in a future Finance Bill, if we were minded to adopt his proposed reform, we would be able to have full and proper scrutiny of that change of policy. It would not be appropriate in this Bill to jump from where we are to where he suggests we ought to be in the future.

Mark Field: Although I understand the Minister's comments, and that the watchwords are innovation and imagination, equally there is a need for flexibility. That is what we are getting at. We cannot foresee everything and there is no doubt that this area will be fast-moving. There are ideas of deferred payments and the interlinking, as my hon. Friend the Member for Runnymede and Weybridge rightly said, between the Treasury and the Department for Work and Pensions. We will see that debated in the next couple of weeks in the Bill relating to land registration, which again covers issues that are in a state of flux. Does the Minister not understand our concern that flexibility is needed as well as innovation and imagination?

Ivan Lewis: I am always up for flexibility as well as innovation and imagination, but I am not prepared to endorse an approach that might lead to unintended consequences before we test this policy out and ensure that it influences people to make decisions in a way that we believe is consistent with their best interests.

Philip Hammond: The Economic Secretary's point is a good one. We certainly would not want the primary legislation dealing with deferment of pensions to allow the Government scope to make endless changes to it. It is quite proper that if a partial deferment regime is to be introduced, it should be considered properly in the House.
This Finance Bill simply deals with consequential changes to the way the tax system works, to accommodate a policy announcement that has been made by another Department and dealt with in different legislation. All I am suggesting to the Minister is that it might have been a good idea—if the consequential legislation was drafted widely enough—to use wording to such effect that any changes made to the principal legislation at a later date would not make it necessary to revise the consequential legislation as well.

Ivan Lewis: Before we consider the consequences, let us remember that if we were to adopt deferment of  pensions as a policy, it would first have to be in a pensions Bill. Things could be the wrong way round. To give even an indication in this Bill that that was somehow a decision that the Government have made, when it is not, would send out signals to individuals, financial advisers and others that could turn out to be exceptionally misleading.
I have said to the hon. Gentleman that we are not ruling out for ever the option of partial deferment. It is worth considering, but we must ensure that the changes we make are introduced in an integrated and sensible way, allowing people to make the right choices. We believe that a modern pensions policy would enable them to do so.

Rob Marris: Does the Minister agree that the premise put forward by the hon. Member for Runnymede and Weybridge—namely, that there has been a policy announcement by Government to allow partial deferral—was wrong? He referred to it as a policy, but I am not aware that any such policy has been announced.

Ivan Lewis: As ever, I thank my hon. Friend for spotting that; the Opposition are not in a position to announce Government policy, and will not be for many years to come.
To stick to the point, I acknowledge and recognise that the hon. Member for Runnymede and Weybridge made a perfectly reasonable point about partial deferment, but I made it absolutely clear that that is not Government policy at this stage, as we believe that it may—only may—lead to confusion, ambiguity and unintended consequences. I feel strongly that it would be inappropriate at this stage to suggest that that is Government policy by putting it in this Finance Bill. The provision has not even yet formed part of any pensions Bill, which, in the circumstances, would be the place where we would ordinarily start with such a measure. On that basis, I ask the hon. Gentleman to allow the Committee to make progress. 
Question put and agreed to. 
Clause 7 ordered to stand part of the Bill.

Clause 8 - Meaning of ''applicable year of assessment'' in section 7

Question proposed, That the clause stand part of the Bill.

Ivan Lewis: The clause deals with the rules for deciding in which year the tax charge will occur. That year is referred to as the ''applicable year of assessment''. It may be useful to the Committee if I place on record the implications of the clause. In the majority of cases, the applicable year of assessment is the tax year in which the person becomes entitled to their social security pension, and it is based on the first day that a state pension is payable, as established by the Department for Work and Pensions.
The clause also provides rules for establishing the applicable year of assessment in specified circumstances. Crucially—the hon. Member for  Cities of London and Westminster will approve of this—it provides flexibility by allowing people to take the lump sum in the year following what would be the normal year of assessment. That will help people who choose this option for the year following their retirement. That will become possible once the Secretary of State for Work and Pensions lays the necessary regulations enabling that choice; I understand that that will happen later this year. The provision may mean that a lower rate of tax is paid than would have been the case if a person had been assessed in the year of retirement. In this way, the tax rules are not a disincentive to taking the lump sum. 
The clause also establishes the applicable year of assessment in cases where a person dies before taking a lump sum. There are rules that provide for cases in which the surviving spouse inherits the right to the lump sum, and also cases in which it is paid to the person's estate. This flexible approach to taking the lump sum underpins a real choice on taking retirement benefits, and I commend the clause to the Committee.

Philip Hammond: I welcome the Economic Secretary's remarks, and I welcome the flexibility given to the taxpayer to defer assessment by a year; that is a sensible measure. We all know what we are trying to do under this clause. The problem, as is so often the case with tax, is that it is easy to announce in one sentence what the Government want to achieve—namely that no one should pay a higher rate of tax than they otherwise would have paid simply because they got a lump sum payment. However, it is much more difficult to translate that into reams of written words that give effect to the measure.
I do not wish to rehearse an argument that we have already had, but as the Economic Secretary said, the applicable year of assessment is the year of assessment in which the first benefit payment day falls. Without necessarily making the case for keeping open the options for partial deferment—although that would be a beneficial outcome of what I am about to suggest—one is compelled to ask why the year of assessment is not the year in which the lump sum is paid. That year, or indeed the following year by election, would seem to be the more obvious year of assessment. Why do we have this rather tortuous mechanism under which the year of assessment is the year in which the pension is paid, not the one in which the lump sum is paid, or when the first benefit payment date for the pension falls, rather than the day on which the lump sum is paid? That gives rise to a concern about clause 8(8), which says: 
''For the purposes of determining the applicable year of assessment, it does not matter when the lump sum is actually paid'',
and also a concern about clause 7(1). I should be pleased if the Economic Secretary would rule out the possibility that someone could be assessed to tax in a period of assessment on a lump sum that they had not received, and that a pensioner could find that they were presented with an assessment to tax in respect of what could be four or five years' deferred pension—quite a lot of money—that they had not received: a tax bill which they therefore had no way of paying. Such a situation could arise, for example, if somebody opted to defer their pension for four years and at the end of  the four-year period the ''first benefit payment day'' fell in that period. That person would, on that day, become liable to pay the tax on the lump sum, but what if the Department for Work and Pensions could not find them? What if they had moved home or disappeared? 
We know that the Treasury has difficulty tracing people and paying them the right amounts of money. It is not inconceivable, as any hon. Member will recognise—and even a brand new Member will have had enough post so far to recognise—that people do not always get the payments that they are meant to get from the Government when they are meant to get them. Is it not possible that elderly and vulnerable people may suddenly be presented with a bill for a tax liability that they cannot pay, because they have not had the lump sum in question, which is presumably accruing interest due to HMRC? That is a problem.

Rob Marris: I draw the hon. Gentleman's attention to explanatory note 11 on clause 7, which says that there will be a PAYE deduction by the DWP on these lump sums, so it would not be the case that an elderly person—to use his suggestion—will be presented with a tax bill that they could not pay; it will be done by PAYE.

Philip Hammond: I am not an expert on the PAYE system, although the hon. Gentleman may be, but the fact that tax is subject to PAYE deduction does not exempt the taxpayer from liability to pay an amount if, in error, it is not deducted or if something goes wrong with the PAYE system. I should have thought that the liability attaches primarily to the taxpayer and there is an obligation on the employer to deduct the PAYE amount.
I was going to ask some questions about this provision for PAYE pension deduction under clause 10, because I suspect that the Minister will tell us that this is a narrow class of all lump sum payments. However, we will find out about that in due course. 
I also have a question about subsection (4), which the Minister has explained. Anyone who penetrated the identity of P and S on reading the Bill will have concluded correctly that they are married people, or those treated as married for the purposes of the pensions legislation, and P stands to inherit the lump sum following S's death. Can the Minister explain why the logic of allowing the year of assessment by election to be postponed by a year to avoid a spike is not extended to the widow or widower of S following S's death? Why is there not the same provision under subsection (4), allowing an election for postponement by one year?

Ivan Lewis: The hon. Gentleman raises some important issues, to which I shall try to respond one by one. He made comments about the delay; that follows the basis on which the state pension is taxed. For example, the delay could be necessary to determine the amount of the final entitlement.

Philip Hammond: The Economic Secretary makes my point for me. I am suggesting that it would be more logical, and fairer, if the lump sum were taxable when it was paid. If there were a delay—because the DWP computer had broken down, or  something like that—the tax charge would arise when the payment was made. The Government propose that the charge should arise on the ''first benefit payment day''. Why?

Ivan Lewis: The reason is that we are anxious that this approach should be consistent with how we currently tax state pensions; any departure from that would lead to undesirable consequences.
The hon. Gentleman also wanted clarification on whether a demand for payment of tax under self-assessment could be made before a lump sum was even paid. The answer is no. The DWP's position is that there would be reason for such a delay only if there were a doubt about the pensioner's contribution records. The DWP might have to make inquiries about entitlement to fairly small elements of the lump sum. In such a situation, apparently, the DWP often makes an initial payment, comprising the amount that is not in dispute. I hope that that helps the hon. Gentleman. 
PAYE regulations will be made to enable the DWP to deduct tax through PAYE on the basis of a declaration by the pensioner of the appropriate rate. The tax will be deducted at the same time as the lump sum is paid.

Philip Hammond: Will the Economic Secretary address the specific situation of the lump sum payment being delayed for any reason? Following on from the point made by the hon. Member for Wolverhampton, South-West, would it be the case that because a PAYE regime was in existence, the taxpayer would not become liable for the tax on entitlement to the lump sum on the ''first benefit payment day'' as the Bill suggests? Are we saying that there would be no liability on the taxpayer and that the matter would be entirely taken care of by the PAYE system that the DWP will operate?

Ivan Lewis: The hon. Gentleman went on to ask about a delay in payment, and raised another point about whether a pensioner would become liable for tax before being able to pay. The response is that the only reason for such a delay would be when there was a doubt about the pensioner's contribution record. The tax would be deducted at the same time as the lump sum was paid. The DWP processes already take account of situations in which such things happen, and the changes proposed in the Bill do not have a material impact on that.

Philip Hammond: I agree with the Economic Secretary: the tax will be deducted at the moment when the lump sum is paid. We all agree on that; the problem is that the liability will not arise at the moment when the lump sum is paid. For some reason best known to themselves, the draftsmen decided that the liability should arise in
''the year of assessment in which the first benefit payment day falls''.
Therefore, if a person received their first benefit payment—their first pension instalment—on, let us say, 4 April, but received their lump sum payment some two, three or four months later, perhaps for all the good reasons that have been set out, although the PAYE tax may be deducted by the DWP when the payment is made, the liability has arisen in the year of  assessment in which the first pension payment day falls. Is that not correct?

Ivan Lewis: I shall try again to articulate the way the system works, and if the hon. Gentleman is not satisfied with what I have to say, I will have to write to him to provide further clarification.
The hon. Gentleman keeps on referring to a delay. As I have said, the only reason for such a delay is where there is a doubt as to the pensioner's contribution record. In those circumstances, the DWP might have to make inquiries around entitlement for fairly small elements of the lump sum. It is my understanding that in those circumstances the DWP makes an initial payment comprising the amount that is not in dispute. PAYE regulations will be made to enable the DWP to deduct tax through PAYE on the basis of a declaration by a pensioner as to the appropriate rate at which to deduct tax. The tax will be deducted at the same time that the lump sum is paid. I think that that is a pretty clear response to the hon. Gentleman's point.

Mark Field: My hon. Friend has set out an obvious practical example, and it would be helpful if the Economic Secretary were to explain what is likely to happen. What will be the procedure? Is it likely that a cheque will be sent out for a lump sum? Will the Department investigate in advance to ensure that the cheque is sent to the right place, particularly if there is a delay of three or four months, as put forward in my hon. Friend's intelligent example? Our concern is that a potentially significant interest payment will be due to a beneficiary if there is a delay between their cheque being sent out, and therefore being out of the Department's hands, and their receiving it and paying it into their bank account.

Ivan Lewis: I shall try to provide a clearer definition of what is meant by a PAYE payment date. That is triggered by the actual payment itself, rather than by when the entitlement occurs. That has been part of the confusion; the actual payment triggers the PAYE payment date, not when the entitlement occurs.

Philip Hammond: Let us try to resolve this once and for all. I think the problem would be solved, and we would not be having this discussion, if the Bill were to state that the liability arises when the payment is made. That would be consistent with the PAYE legislation. I think that that is contained in section 683 of the Income Tax (Earnings and Pensions) Act 2003, which the Minister is now quoting and which says that the PAYE deduction falls to be made when the payment is made.
I am simply asking the Minister to confirm that there is no circumstance in which a person who has not received their lump sum payment could have a liability for payment of tax which is therefore accruing interest. For example, if a person who is due a lump sum payment has moved and cannot be traced and the Department cannot pay them the cheque because it cannot find them, in the interim period does a liability for tax arise, and is interest therefore accruing on that liability?

Ivan Lewis: I shall try again. In terms of the situation that the hon. Gentleman has described, in no circumstances would that happen. I have tried to say that throughout the debate; there are no circumstances in which that would happen. I hope that reassures him.

Rob Marris: Perhaps I can, through my hon. Friend the Economic Secretary, reassure the Committee. We are, in a sense, on clause 7, Sir Nicholas.
The hon. Member for Runnymede and Weybridge raised an interesting point. By way of an analogy, I suggest that he is mistaking a position where you have VAT at the nil rate, versus VAT exemption. There is a difference. Per clause 7(1), a charge—indefinite article—arises, but in clause 7(5)(a), for example, it quite recognises that that charge could be nil. Therefore, the concerns that the hon. Gentleman is raising would not hold water.

Ivan Lewis: Perhaps we should draw this to a conclusion. The hon. Member for Runnymede and Weybridge asked me earlier what happens if we cannot find the person concerned. If we cannot find them, there is no tax due. I should have thought that was pretty self-explanatory. If we cannot find the person concerned, how can we actually pay them to then tax them? I give way one last time.

Philip Hammond: That is precisely the question that we are asking.

Dawn Primarolo: He has told you that six times.

Philip Hammond: He has not. If the liability to tax arose on payment of the lump sum, I would totally agree with the Economic Secretary. My concern is that it appears, from the face of the Bill, that the applicable year of assessment is the year in which the first benefit payment day falls. So if a benefit payment day occurs in a year of assessment, liability to tax on the lump sum arises at that moment. That is my interpretation.
If the Economic Secretary is able to tell me clearly that that is wrong, and that in no circumstances could a person have a liability to tax on a lump sum until they have received it, we shall be perfectly satisfied. My only remaining question for him would be, why on earth is that not the definition in the Bill—that receipt of the lump sum is the trigger for payment of the tax?

Ivan Lewis: In no circumstances.
Question put and agreed to. 
Clause 8 ordered to stand part of the Bill. 
Clauses 9 to 10 ordered to stand part of the Bill.

Clause 12 - Employee securities: anti-avoidance

Mark Field: We have amendments to clause 12 under schedule 2.

Nicholas Winterton: I have to tell you that that comes under schedule 2. Do you wish to speak to stand part?

Mark Field: As you will see, Sir Nicholas, clause 12 introduces schedule 2. If we can have a stand part debate in relation to schedule 2 at the end of the consideration of our amendments, I should be  grateful. I hope that, with leave, you will allow us to do that.

Nicholas Winterton: That depends on how it goes. If I believe that adequate debate has taken place on all parts of schedule 2, I would not allow time for a stand part debate. I cannot make that decision, however, until I see how the debate on schedule 2 has taken place. I say to the hon. Gentleman that clause 12 merely introduces schedule 2. The Committee must trust me on this matter.

Dawn Primarolo: On a point of order, Sir Nicholas, I wish to make a couple of opening remarks before we start the debate on the amendments. Would it be in order for me to do that at the beginning of schedule 2, or should I do it on clause 12?

Nicholas Winterton: I should have thought that it would perhaps be sensible for general remarks to be made under clause 12 stand part.
Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: Thank you for your guidance, Sir Nicholas. I want to make a few opening remarks on clause 12, as it introduces schedule 2. I wanted to start by making it clear that the targets with regard to the arrangements are where a minority of individuals remain intent on devising ever more complex—
It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
Adjourned till this day at half-past Four o'clock.